House Flipper Saves $63,000 by Restructuring Flipping Business
I flip eight to ten houses a year in the Las Vegas area. Most people do not realize that the IRS treats house flippers as dealers, not investors, which means flipping profits are subject to self-employment tax on top of regular income tax. I was paying SE tax on every dollar of profit, and my old CPA never said a word about it.
AE Tax Advisors restructured my flipping operation as an S-Corp. By paying myself a reasonable salary and taking the rest as distributions, I eliminated self-employment tax on the distribution portion. On eight flips averaging $40,000 in profit each, the SE tax savings alone were substantial.
They also introduced me to installment sale strategies for certain properties. When a flip buyer uses conventional financing, you can sometimes structure the sale to spread the gain across two tax years, keeping you in a lower bracket. AE Tax identified which flips were eligible and structured the closings accordingly.
Total savings: $63,000. Solid results. I gave four stars because the initial analysis took a little longer than I expected -- about three weeks from engagement to strategy delivery. Once the strategy was in place, everything moved quickly. The implementation was clean and the team was knowledgeable about the dealer versus investor classification rules.
If you are flipping houses as a sole proprietor and paying self-employment tax on your profits, you are giving away money. An S-Corp election through AE Tax Advisors can fix that quickly.